What is a financial audit?
The purpose of a financial audit is to provide an objective independent examination of the nonprofit’s financial statements. Auditors offer an opinion about whether the financial statements of the nonprofit organization are stated in accordance with generally accepted accounting principles (GAAP). An audit opinion provides reasonable assurance, but not absolute assurance.
Does my nonprofit need an audit?
Your nonprofit may be required to have an audit because you have internal policies, e.g. by-laws or accounting policies, that require an audit, or there may be external regulatory entities or grantors that require your nonprofit to have a financial statement audit. For example, if your nonprofit expends $750,000 or more in federal grants, you may need be required to have a financial audit and you may also need a compliance audit. Some states also have a requirement for a financial audit, for example, in New Mexico, the Office of the Attorney General (AGO) requires all charitable organizations that report $500,000 in "total" revenue (defined as gross revenue prior to any deductions or losses) to have an audit and file an electronic copy with the AGO.
However, many of our clients have an audit not because of internal or external requirements, but because it is a best practice and the audit can also be a helpful with grant applications.
If your nonprofit does not currently require an audit, we encourage you to consider a review, which can be a helpful process for your nonprofit to go through with an auditor, especially if you anticipate that your nonprofit will need an audit in the future.
What does the audit process involve?
An audit involves an examination of each significant amount included in the nonprofit’s financial statements. To do this examination, we start by providing a list of items to be prepared in advance of our on-site visit. Typically, our on-site visits range from 2 to 5 days, depending on the complexity of your nonprofit’s financial activities.
The on-site visit is designed to gain an understanding of processes at your nonprofit that are significant to the financial reporting function, including your nonprofit’s internal controls. We will examine some significant and randomly-selected transactions by reviewing the supporting documentation. In addition, we may also inspect physical assets, such as property and equipment or inventory, confirm information with outside parties, via letter, email or telephone inquiry, and interview personnel and board members.
If any issues arise during the audit process, we will discuss these issues with you to confirm we have a good understanding of the problem, and to ensure any recommendations we make are helpful and appropriate to the uniqueness of your nonprofit organization.
Typically, within two to four weeks of fieldwork, we provide you a draft of the audit report. An exit conference represents the conclusion of the audit, which is an opportunity for you to invite any key management, staff and/or board members to review and discuss the audit. This meeting can be done in-person or via conference call.
The Costs of an Audit?
The cost of an audit conducted by Taylor Roth is agreed to in advance and is a fixed fee; there no additional "out of pocket" expenses. If, during the audit process, we identify a requirement that is not included in our engagement agreement, we will discuss this requirement with you as well as the cost of the additional work. Please keep in mind that this scenario is unusual; the conversations that we have with you during the proposal process are designed to flush out any possible reporting requirements that may be applicable to your nonprofit.
What are the deliverables for the audit?
At the conclusion of the audit, your nonprofit will receive:
• A signed PDF version of the audit report,
• Up to 15 hard copies of the audit (if desired),
• A management letter that discusses issues identified during the audit process that involve your nonprofit’s financial reporting and internal control processes, with recommendations on how to resolve and/or address the issues, and
• A graphical report in PDF format that displays key financial statement information. This graphical report provides a big-picture perspective of financial trends at your nonprofit for the current and prior four years.